Reserve Bank orders ANZ to provide assurance 'it is operating in a prudent manner'

Monday, 24 June 2019

ANZ staff are said to be furious that they've been helping to pay for their chief executive's lavish lifestyle while they've struggled for a pay rise.

ANZ has been ordered to get two independent reviews, after the Reserve Bank asked for assurance that the bank 'is operating in a prudent manner'.

On Monday, Reserve Bank governor Adrian Orr announced that the central bank was requiring New Zealand's largest lender to provide reports, using its powers under Section 95 of the Reserve Bank of New Zealand Act 1989.

This section gives the Reserve Bank the power to require a bank to provide a report by a Reserve Bank-approved, independent person.

The first report will cover ANZ New Zealand's compliance with the Reserve Bank's current and historic capital adequacy requirements.

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The second will assess 'the effectiveness of ANZ New Zealand's Director's Attestation and Assurance framework, focussing on internal governance, risk management and internal controls'.

ANZ was censured in May by the regulator for 'persistent failure in its controls and attestation process'.

Directors at ANZ New Zealand had repeatedly attested that the bank was complying with the Reserve Bank's rules when in fact it had been using an unauthorised model to calculate how much operational risk capital it held since 2014, without knowing.

As a result, the Reserve Bank required ANZ to use a standardised model for calculating how much capital it should hold, which meant ANZ's minimum capital would increase by around $260m.

The censure prompted former BNZ chairman Kerry McDonald to call for ANZ New Zealand chairman Sir John Key to resign 'or be removed'.

Some commentators suggested David Hisco took the fall over the censure.

Orr said in a statement that the Reserve Bank 'continue[s] to engage constructively with ANZ New Zealand's board, and they remain focussed on these important issues. These formal reviews will allow us to work with the bank to ensure the public, and we as regulator, can have continued confidence in the bank and that it is operating in a prudent manner'.

Commentators have suggested that embarrassment over the censure could have been part of the reason that former chief executive David Hisco was so swiftly shown the door over problems with his personal expenses.

ANZ said in a statement that it would work with the Reserve Bank.

Board chairman Sir John Key said the board had been working on commencing an independent review to provide assurance its capital models and the directors' attestation process were robust and operating in a prudent matter.

'Following discussions with the Reserve Bank, the directors agree that the best way to achieve this assurance is working with the Reserve Bank and an independent party to undertake the necessary reviews.'

ANZ has said that it was disappointed by the error, but that the directors of the board were entitled to rely on what they were told about the risk capital models.

The error led to the bank holding around $23m less than what it should have, a small fraction of the more than $12 billion capital it holds.